Feds As Little Red Riding Hood

When politicians look for bigtime cuts in payroll and pension costs, active and retired feds – those who would get the chop – sometimes focus on the wrong threat from the wrong direction. That can be a problem especially when in a worst-case scenario it could force FERS employees to kick in much more to their retirement plan, shave thousands of dollars each year from retirement benefits and nearly double health premiums of workers and retirees.

The “threat” that seems to have the attention of many feds involves changing the formula used to compute retirement benefits. Under the concept, future benefits would be based on the employee’s highest 5-year average salary. Now Uncle Sam uses the high-3. Although it hasn’t been introduced, many feds have asked if the change will be immediate, retroactive, or would they have time to retire before it takes effect?

That high-5 plan surfaces every year as part of laundry list of ways-to-save-money that goes to Congress. And it goes away, undone.

This year Congress seems more serious/tougher/meaner (pick one) in its approach to government costs. The White House kicked things off by ordering a 2-year federal pay freeze and key House Republicans have pushed for an extended freeze and other big-ticket changes. But so far nobody has proposed/introduced the high-5 plan. It could happen, but for now it is not on the table. However there are two lesser known, but far more serious, proposals under active consideration:

1) A bipartisan administration/congress plan that – if approved – could double your health premium payments within a few years. That would happen as feds and retirees assumed a larger share of the premium cost each year. And,

2) An even more dramatic concept that would permanently reduce the size of the future cost of living adjustments (COLAs) for federal retirees, military retirees and (can you hear the politicial time bomb ticking?) the one in six Americans who gets Social Security. We gave you an early-warning alert in June.

Federal, military, Social Security retirees get a cost of living adjustment each January based on the rise in living costs as measured by the Bureau of Labor Statistics Consumer Price Index. Most retirees got a COLA of 5.8 percent in 2009. But there was no COLA last year or this year because the formula used by the government indicated that prices (thanks to periods of deflation) had actually dropped. With four months left to go in the COLA countdown CSRS retirees are in line for a raise in the neighborhood of 3.5 percent. For details on that, click here.

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But if Congress and the White House agree to use a different, less generous, formula to compute the COLA increase it could reduce each annual raise by as much as .5 percentage point (according to some experts) each year.

The National Active and Retired Federal Employees is urging its members to use a hot line to tell Congress to leave the COLA formula alone.

The Federal-Postal coalition (of groups representing union members, managers, etc.) told the President the budget can’t be balanced on the backs of feds. They are especially fearful of a White House plan to increase FERS pension contributions by employees.

A lobbyist for one of the groups said nobody knows exactly which of the horrible options – if any – will make it. ” But fear is in the air,” he said.

A practical guide for Roth conversionsFederal employee transition planning experts provide a step-by-step guide on the best ways to get the most money into a Roth individual retirement account.

Survey: Next generation of governmentYoung feds in government bring new ideas and energy – as well as new working styles. Federal News Radio wants to know what it’s like for veteran feds to work with Gen X, Y and the Millenials, and vice-versa.